Australia's largest electricity generator has strongly dismissed a new push by the Turnbull government to make the country's coal-fired power stations
run for years longer than originally planned.

Prime Minister Malcolm Turnbull raised the prospect in Parliament – and in a phone call to AGL chief executive Andy Vesey – after a new report from
the nation's energy regulator warned urgent action was needed to stop homes and businesses losing power during extreme summer heat.

Mr Turnbull has revealed that the government wants NSW's 46-year-old Liddell plant to remain operating for "at least" another five years beyond its
scheduled 2022 closure.

But the Prime Minister was rebuffed only hours later when Mr Vesey said in a series of tweets the company was "getting out of coal" and that it was
committed to the closure date.

The Australian Energy Market Operator report, to be publicly released on Wednesday, did not endorse the construction of new coal plants but recommended
existing ones remain open for longer, setting the scene for a new front in the nation's complex energy crisis.

The report has also called for the creation of a new "strategic reserve" of electricity to avoid possible blackouts as soon as this summer in Victoria,
South Australia and possibly NSW because of supply shortfalls.

Government sources characterised the phone call between Mr Turnbull and Mr Vesey as constructive, but added there was a willingness to stare down resistance
from the company, which has repeatedly committed to the market and customers that it will start exiting coal-fired power generation from 2022,
and complete the transition by 2050.

Responding to Mr Vesey's public comments, Mr Turnbull revealed AGL might be open to selling Liddell to another operator who would be willing to keep
it operating.

Asked if the government would buy the plant, Mr Turnbull said: "I think it's better that the private sector owns generators like that."

Energy Minister Josh Frydenberg said the government intended to "do everything we can to keep sufficient base-load power in the system".

"Building on our actions to date including putting in place new restrictions on the export of gas and opening up discussions with AGL over Liddell,
the Turnbull government will leave no stone unturned to ensure affordable and reliable power for all Australians," he said.

As recently as last month, Mr Vesey ruled out keeping Liddell – which has a capacity of about 2000 megawatts – open beyond 2022.

The operator's report will help shape the Turnbull government's approach to implementing a post-2020 Clean Energy Target.

Business, environment groups and Labor have demanded the government implement the target – recommended by Chief Scientist Alan Finkel – to help drive
investment in new generation and put downward pressure on soaring power prices.

The AEMO report notes that given the short time available to bring new electricity generation online to meet looming shortfalls in the national electricity
market, it is preferable to extend the life of existing plants such as Liddell, rather than invest in new power plants that have "uncertain long-term
business viability".

This recommendation will not be welcomed by conservative sections of the Coalition party room who oppose a Clean Energy Target and back the construction
of a new coal-fired power plant – something Mr Turnbull has not ruled out.

The report also warned the boom in renewable energy has eroded the business model of coal-fired generators and affected the reliability of the national
electricity market, particularly in Victoria and South Australia.

The closure of Liddell would place significant pressure on the national electricity market, with 1000 megawatts of "flexible, dispatchable" capacity
currently provided by the station needed from 2022 if the plant shut down.

From this summer, the proposed strategic reserve would kick in to meet soaring demand, potentially as high as 1000 megawatts capacity. The amounts
needed will gradually decrease through to summer 2020-21.

The "strategic reserve" would exist outside the national electricity market. The AEMO is working to convince large businesses who have their own generators
to contribute to the strategic reserve.

The Finkel review of the electricity market, released in June, promised lower energy prices for households and business under a Clean Energy Target,
compared to a business-as-usual scenario. Forty-nine of its 50 recommendations have been adopted, but the Clean Energy Target has not yet been
adopted due to objections from the backbench.